How keeping faith in equities in 2021 helped the Goels

Then the pandemic struck, upsetting their financial calculations. Their stock investments took a big hit, and even the mutual fund investments meant for their children’s higher education declined sharply. The mutual funds earmarked for their elder son’s college education were the worst affected.

The couple had started systematic investment plans (SIPs) of ₹10,000 each in two multi-cap equity funds in 2016, with a target of ₹30 lakh in 2024. “The stock market crash in March 2020 reduced the accumulated corpus almost by half. I didn’t know what to do,” said Saurabh.

The crash was a wake-up call for the couple. They realized that they had not taken enough precautions or cushioned their investment portfolio against volatility. For one, they did not have an emergency fund.

Saurabh was nudged into action by accounts of people facing difficulties in raising funds for the treatment of sick relatives. He immediately put away ₹1 lakh in a liquid fund for contingencies and added ₹20,000 to the fund every month. The contingency fund now has almost ₹5 lakh, which is enough to sustain the family’s expenses for five-six months.

When the covid crash happened, the only saving grace for Saurabh was that his home loan was nearly paid up. The last of these 10-year EMIs of ₹35,900 was paid off in October 2020, which took a big load off Saurabh. “I can’t imagine how things would have been if I also had to pay the home loan EMI,” he said.

More importantly, they realized that they needed professional financial advice to navigate the ups and downs of the investment landscape.

“I discussed my financial portfolio with my friend, and he advised me to get in touch with a financial planner who would charge a flat fee and not earn any commission on the products I invest in,” he said.

After that, the financial expert, Raj Khosla, managing director, MyMoneyMantra.com, examined their portfolio and convinced the couple that the slump was an overreaction.

“Fortunately for the Goels, they did not lose their nerve when there was blood on Dalal Street,” said Khosla.

The markets eventually recovered, and their stocks and mutual funds regained their lost value. Saurabh continues to put ₹10,000 a month in two of the three equity funds.

The Parag Parikh Flexicap has done exceptionally well during this period, thanks to the global stocks lining its portfolio. The corpus has grown to ₹14 lakh, generating SIP returns of 21.5%. The Canara Robeco Flexi Cap Fund corpus has grown to ₹12 lakh, with SIP returns of 16.15%. The market again scaled new highs, but Saurabh is now wiser.

At the beginning of 2021, markets were taking a breather after a sharp rally in December 2020. Khosla said, “They remained range-bound for four-five months before resuming their upward journey.”

Given his age and risk profile (moderately aggressive), Khosla advised Saurabh to keep a balanced allocation of 50:50 in debt and equity.

Saurabh was hesitant about continuing his SIPs after the markets turned range-bound when the second wave of covid hit India. But the planner advised him to continue SIPs as that would allow him to buy more at lower prices. Khosla advised him to periodically rebalance his portfolio if the allocation diverged too much from the predetermined ratio of 50:50.

Khosla said, “By rebalancing the portfolio, it will ensure that any decline in the equity markets now will not affect him as badly as it did in early 2020.”

The planner also advised Saurabh to reduce the risk in the portfolio as the goal gets closer. “My elder son is 15, so we will need the money in about three years. Therefore, I have started shifting systematically from equity funds to a debt scheme to book profits and protect the capital,” he said.

Khosla said since the Aditya Birla Sun Life Flexicap has not done that well, with the corpus at ₹10 lakh and returns of 12.7%, Saurabh has started gradually shifting the corpus to the Aditya Birla Sun Life Short Term Fund with a systematic transfer plan of ₹50,000 per month.

However, the strategy for medium-term and long-term goals is different.

Saurabh’s twin sons are 12 years old, so their higher education is still six years away. Given the longer time horizon, the planner has advised Saurabh to continue SIPs in the three equity funds chosen for the purpose.

After three-four years, when the goal is two-three years away, he should gradually shift from equity funds to a debt scheme to protect capital, Khosla said.

On the advice of the financial planner, Saurabh also bought a ₹5 lakh floater health insurance plan for his family in addition to the group cover from his employer. He already had two life insurance policies, but they were traditional plans that gave very low cover.

The financial planner nudged him to buy a term insurance plan of ₹1 crore, for which he pays an annual premium of ₹13,600.

The other goal for Saurabh is his retirement planning. He was putting some additional amount in the voluntary provident fund, but reduced that after the interest from contributions exceeding ₹2.5 lakh in a year became taxable.

The financial planner also advised Saurabh to focus on equity funds that could fetch him better returns in the long term.

“My retirement is still 18 years away, so equity funds make sense. In any case, my provident fund already takes care of the fixed income portion of the portfolio,” Saurabh said.

Khosla also advised Saurabh to invest in the National Pension System (NPS) for retirement. The low-cost structure of the NPS makes it an ideal investment for long-term goals.

What’s more, it also offers tax benefits that are not available on any other instrument.

This way, in the 30% bracket, Saurabh can reduce his tax by more than ₹15,000 if he invests ₹50,000 in the NPS under Section 80CCD (1b). This saving is above the overall tax-saving investment under Section 80C of the Income Tax Act.